Lincoln National Corp. (LNC): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


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Lincoln National holds a secure capital position, fair liquidity and improved financial leverage that aid incremental capital deployment, reflected by 25% dividend hike. The divestment of LFM will further lift financials. Its third-quarter earnings outpaced the Zacks Consensus Estimate driven by higher account balances across segments, premiums and fees. These drove double digit revenue growth. Higher new business returns from strong distribution network and expanded product portfolio also boosted results. Improved investment portfolio coupled with higher retention and pricing also enhanced ROE and book value. These were partially offset by higher expenses as well as reduced net flows and deposits. Economic volatility, competition and low interest rate environment also restrict desired upside. We retain our Neutral recommendation.


Founded in 1904 and headquartered in Philadelphia, Pennsylvania, Lincoln National Corporation is a diversified life insurance and investment management company. Operating under the Lincoln Financial Group name, the company's primary subsidiaries are Lincoln National Life Insurance Company (LNL), First Penn-Pacific Life Insurance Company, Lincoln Life & Annuity Company of New York, Delaware Management Holdings Inc., Lincoln National (UK) Plc, Lincoln Financial Advisors (LFA), and Lincoln Financial Distributors (LFD).

Lincoln National engages in multiple insurance and retirement businesses in the U.S., which include fixed and indexed annuities, variable annuities, universal life insurance (UL), variable universal life insurance (VUL), linked-benefit UL, term life insurance, mutual funds and group life insurance. The company also provides employer-sponsored fixed and variable annuities and mutual fund-based programs single and survivorship versions of UL and VUL, including corporate-owned UL and VUL and bank-owned UL and VUL products to small- and mid-sized banks and large-sized corporations and group non-medical insurance products that are principally for term life, disability and dental. Lincoln National distributes its products through a range of intermediaries, including financial advisors, consultants, brokers, banks, wire houses, planners, third party administrators and other intermediaries. As of Dec 31, 2013, the company had 9,115 employees. In addition, a total of 1,424 planners and agents had active sales contracts with either of its insurance subsidiaries.

The company provides products and services in three operating businesses, which are as follows:

Annuities: focuses on offering tax-deferred investment growth and lifetime income opportunities for its clients via fixed (including indexed) and variable annuities. These contracts provide payout alternatives for a steady income flow for life. This segment accounted for 27% of the total operating revenue in 2013.

Retirement Plan Services: (formerly known as Defined Contribution) focuses on investment and asset management services for retail and institutional clients by offering wealth creation, protection, and retirement planning products and services via mutual funds, defined benefit and defined contribution plans along with individual retirement account (IRA) markets. This segment accounted for 9% of the total operating revenue in 2013.

Life Insurance: focuses on creation and protection of clients' wealth through an array of life insurance products such as term insurance, linked-benefit product (UL policy linked with riders that provide for long-term care costs) along with both single and survivorship versions of UL and VUL, including COLI and BOLI products. This segment accounted for 42% of the total operating revenue in 2013.

Group Protection: focuses on providing group non-medical insurance products such as term life, disability and dental, to the employer marketplace through various forms of contributory and non-contributory plans. The segment accounted for 18% of the total operating revenue in 2013.

Others: primarily focuses on the financial data for operations that are not directly related to the business segments and other unallocated corporate items. The segment accounted for 4% of the total operating revenue in 2013.

Following a stronger foothold in the life insurance and annuity arena, Lincoln National has been growing into other lines of business to diversify its operations. In addition, the company has disposed of its less profitable businesses or business lines in order to strengthen its asset management operations, such as pension plans, trusts and mutual funds. The operations were enhanced in 2006 with the acquisition of Jefferson Pilot. In 2009, Lincoln National sold its UK-based subsidiary and Delaware Management Holdings, Inc. to shore up the capital base of its core U.S. businesses. No acquisitions or divestments were made in 2010, 2011 and 2012.

In Jul 2009, Lincoln National successfully completed a comprehensive capital plan (CCP) that included reduction in the common stock dividend, disposal of certain subsidiaries and issuance of common stock and debt. Steps were taken to strengthen the capital position of its principal insurance subsidiaries and provide liquidity to its holding company amid economic volatility.

In Oct 2013, Lincoln National entered into a reinsurance treaty to cover the new sales of its flagship variable annuity guaranteed living benefit product. Per the deal, Lincoln National will offer 50% coinsurance on new living benefit guarantee sales up to $8 billion through Dec 31, 2014.

As of Sep 30, 2014, Lincoln National had assets of $248.5 billion, long-term debt of $5.19 billion and total shareholders' equity of $15.45 billion.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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